The basic principles of Lagging Indicators are often misinterpreted, but they are a good way to analyze financial markets. This article will focus on what lagging indicators are, application examples of lagging indicators, and the benefits of using lagging indicators.
01 What is a lagging indicator
A lagging indicator is a tool for traders to analyze the market by using the average value of price changes that have occurred. There are many types of lagging indicators, and they are used to review market trends and the timing of entry and exit.
In the trending market, lagging indicators are considered to be the most effective. However, many signals occur after the actual transaction, which makes traders less profitable.
02 What are the lagging indicators?
The most widely used lagging indicators are those related to moving averages. The following indicators belong to this type of indicators:
Simple Moving Average (SMA)
Exponential Moving Average (EMA)
Moving Average Convergence and Divergence (MACD)
These indicators use past price movements and different calculation rules to create specific market signals. Moreover, these indicators can be applied to different traders, and the defined parameters in each calculation formula can be changed.
03 Simple Moving Average
Simple Moving Average (SMA: Simple Moving Average) is a lagging indicator that measures the average closing price of a financial instrument within a specific period of time.
04 Exponential Moving Average
The exponential moving average (EMA: Exponential Moving Average) indicator is a lagging indicator based on the compound operation of the simple moving average SMA; the only difference between it and SMA is that it prefers to use more recent price movements.
